Bulls Go Missing as India loses Asia’s Best Stock Market Tag

For India equity bulls, a good year for the nation’s stocks has quickly soured. Blame it on the concerns about a troubled lender that led to a sudden cratering in non-banking finance companies—a favourite among money managers until recently—and stripped the nation of its tag as Asia’s best stock market this year. The swift reversal introduces a sobering note in the $2.1 trillion market that climbed to multiple records in August despite rising oil prices and a tumbling rupee, thanks to the optimism about the world-beating economic growth and a robust recovery in earnings. The S&P BSE Sensex is now headed for its worst month in 2 1/2 years, and volatility is back to levels seen in February.

The selloff in non-banking finance lenders, fuelled by default at a lender to infrastructure firms, has led to the Sensex giving up almost half its year-to-date gains – and losing its top spot as Asia’s best-performing stock market this year to New Zealand. The Sensex is up 7.6 percent since January 1, compared with the 11 percent gain in the New Zealand Exchange fifty Gross Index. Indian equities are also the region’s biggest decliners in September even as the nation’s authorities vowed to support financial markets.

Abhimanyu Sofat, head of research at IIFL Securities Limited said “There are concerns over short-term liquidity in the market for commercial papers raised by non-banking finance companies and there’s also uncertainty about the ability of certain NBFCs to raise capital. Investors must wait for a clear picture to emerge.”

While equities of India have traditionally traded at a premium to Asian peers because of the nation’s faster economic growth, the valuation gap between MSCI India Index and MSCI Emerging Markets Index is still two standard deviation above the ten year mean. Elevated valuations and the upcoming elections prompted Goldman Sachs Group Inc. to call time on the nation’s shares earlier this month.

According to a report Morgan Stanley said on Monday, “The eruption in volatility has failed to dent on the positive earnings outlook for Asia’s third-largest economy. The Sensex remains one of the few benchmarks in the region to have seen double-digit upgrades to their consensus earnings estimates this year. The current situation is unlike 2013, the year of taper tantrum when India was part of five nations most at risk of capital flight.”

Ross Cameron, a portfolio manager at Northcape Capital Ltd. said in an interview, “India still offers the best long-term earnings story in Asia. Past periods of market volatility have typically been rare opportunities to buy Indian companies at reasonable valuations.” which manages A$10 billion ($7.3 billion). Volatility has returned to Indian stocks, shattering the calm seen in recent months despite the global trade war tensions. The India National Stock Exchange Volatility Index surged 12 percent on Monday, after climbing 11 percent Friday, to the highest in seven months. While authorities have said they will take all measures to ensure adequate liquidity is provided, the pledges are yet to steady nerves.

The S&P BSE Sensex is now headed for its worst month in two and a half years. Volatility has returned to Indian stocks, shattering the calm seen in recent months despite the global trade war tensions. The India NSE Volatility Index surged 12 percent on Monday, after climbing 11 percent Friday, to the highest in seven months. While authorities have said they will take all measures to ensure adequate liquidity is provided, the pledges are yet to steady nerves.